Work

Nonlinear biases in the roughness of a Fractional Stochastic Regularity Model

Year: 2023

Type: article

Abstract: A Multifractional Process with Random Exponent (MPRE) is used to model the dynamics of log-prices in a financial market. Under this assumption, we show that the Hurst-Hölder exponent of the MPRE follows the fractional Ornstein–Uhlenbeck process which in the Fractional Stochastic Volatility Model of Comte and Renault (1998) describes the dynamics of the log-volatility. We provide evidence that several biases of the estimation procedures can generate artificial rough volatility in surrogated as well as real financial data.

Source: Chaos Solitons & Fractals

DOI: 10.1016/j.chaos.2023.113550

Authors: Daniele Angelini, Sergio Bianchi

Institutions: Sapienza University of Rome, New York University

Language: English

Topic: Complex Systems and Time Series Analysis

Subfield: Economics and Econometrics

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: hybrid

Estimated APC paid: $3,060

Funder: Sapienza Università di Roma